Why taxing remittances defeats the object

The theme of taxing remittances has been raised in certain geographies. Although this is not a South African conversation as yet, it has been highlighted in the international arena as a way to further generate revenue.

According to a recent report by World Bank, taxing remittances would be a bad idea, and Ahmed Cassim, managing director at Hello Paisa, agrees.

According to Cassim, although taxation on remittances has not been proposed in South Africa, this has been driven by the low oil prices in the Gulf and Middle East.

“Interestingly, up to 93 per cent of the population in certain Gulf countries are migrants who supply the labour force for all services. Due to the downturn in oil prices, these economies are now looking at other ways to generate revenues and one option is implementing a tax on remittances,” he said.

Taxation on remittances will impact the most hard working, enterprising, entrepreneurial individuals who make the ultimate sacrifice of leaving behind their loved ones in order to search for a better future, Cassim said.

According to United Nations migration statistics, in excess of 254 million people live outside the country of their birth, with the market size for remittances estimated at US$610 billion per annum.

“Hello Paisa targets migrants living and working in South Africa and has a customer base of 350,000 individuals who rely on the remittance solution to send money home to their families simply, legally and at a low cost. By launching a truly innovative solution which complies with all regulatory requirements, we have been able to bring these individuals into the formal and reportable environment,” Cassim said.

Before remittance solutions such as those offered by Hello Paisa and a host of other startups across the continent were available, many migrants made use of illegal and informal channels to send money home. These illegal money transfer solutions were fraught with problems including delays, lack of pricing transparency whilst also being very expensive, issues remittances startups across Africa have helped address.

“We believe that taxation on remittances is counterproductive and will force these individuals to go back to these illegal channels as this tax will be passed onto them,” Cassim said.

“This will ruin the hard work that has been done by Hello Paisa and other operators to bring remittances into the legal, regulated space. Although, this is currently an international conversation, we at Hello Paisa believe that this type of taxation defeats the benefits this solution offers the migrant market.”